Archive for the ‘Tax Fraud’ Category

Won’t Be Getting Off for a Dime

Sunday, December 4th, 2016

Sreedhar Potarazu is apparently very intelligent. He’s an ophthalmic surgeon in Potomoc, Maryland. He’s also an entrepreneur and an author. He’s also likely to be spending a few years at ClubFed.

Dr. Potarazu formed VitalSpring Technologies, Inc., in 2000. Based in McLean, Virginia, the company provided software that purportedly helped to lower costs and improved service quality for health care. VitalSpring changed its name to Enziime LLC late in 2015.

Companies that grow need money, and that was the case for VitalSpring/Enziime. Dr. Portarazu started to skip paying employment taxes to the IRS. As we’ve said before and we’ll say again, if you want to be investigated by the IRS stop making payroll tax deposits; as best as we can tell, the IRS investigates 100% of such failures. Dr. Porarazu started to not fully pay his employment taxes in 2007. From the DOJ Press Release:

In all but one quarter between the first quarter of 2007 and the last quarter of 2011, as well as the second and third quarters of 2015, Potarazu failed to file VitalSpring’s Employer’s Quarterly Federal Tax Return (Forms 941) with the IRS. Potarazu also failed to pay over any of the employment tax withheld from VitalSpring’s employees’ wages in all but one quarter between the second quarter of 2007 and the third quarter of 2011, as well as the third and fourth quarters of 2015.

Not filing employment tax forms (Form 941) won’t stop the IRS from investigating. Once an employee files his income tax return and shows the withholding of federal income tax and the IRS can’t find that withholding, an investigation is guaranteed. The IRS interviewed Dr. Potarazu in 2011 and let him know of the liability (which he apparently already knew about). The employment tax liability totaled $7.5 million.

So the company needed money. There are several good strategies in such a situation: Making a payment plan with the IRS and slowing down growth so the need for money lessens are two that immediately come to mind. Dr. Potarazu raised $32 million from 2009 through 2016. Since the company wasn’t turning a profit, investors needed reassurances about the business. It’s how he raised the money that caused the problems:

Potarazu induced investments from shareholders by making false representations, concealing material facts, and telling deceptive half-truths about VitalSpring’s financial condition, tax compliance, and alleged imminent sale. Potarazu also caused someone to pose as a representative of a prospective buyer on shareholder conference calls to add legitimacy to his claims regarding VitalSpring’s imminent sale.

VitalSpring had not generated a profit since 2009. Nonetheless, Potarazu falsely represented to shareholders that VitalSpring’s financial position and profitability was improving from 2009 to 2015, and that VitalSpring had millions of dollars in cash reserves. To support his scheme, Potarazu presented fake bank statements to some shareholders that showed inflated balances.

Potarazu also concealed from shareholders that VitalSpring owed substantial employment tax to the IRS. Potarazu provided or caused to be provided false corporate income tax returns to some shareholders that overstated VitalSpring’s income and omitted the accruing employment tax liability.

Committing fraud to investors is not a good strategy. And doubling down on it will make things worse:

In November 2014, Potarazu created a Special Review Committee (SRC) in response to a lawsuit filed in Delaware by shareholders that claimed Potarazu misled the victim investors about VitalSpring’s finances, the status of the impending sale, and Potarazu’s compensation. Potarazu provided the SRC with false financial records, fake tax returns, and fake bank statements to induce the SRC to believe that VitalSpring was financially healthy and to cause the SRC to make materially false representations to the Delaware court and victim investors. He also falsely represented that the alleged imminent sale would yield substantial returns to the shareholders, and used this to induce additional investments. Members of the SRC traveled interstate to the Eastern District of Virginia to attend meetings in which Potarazu presented false information for their review.

There was no sale pending. Dr. Potarazu even made up emails from a purported bank employee and provided a buyer with a link to a phony website. And he used some of the money from investors for his personal use.

Dr. Potarazu pleaded guilty to inducing interstate travel to commit a fraud and failing to account for and pay over employment taxes. He’ll be sentenced next year and will likely have plenty of time at ClubFed to write a second book.

Stealing From the Disabled Worked…For a While

Sunday, October 30th, 2016

Virginia and Derma Miller, mother and daughter, had a good thing going. They took identities of the physically and mentally disabled and filed tax returns on their behalf. Of course, those returns all had refunds, with those refunds finding their way to the Millers.

All was well and good for the Millers until the IRS discovered the scheme. Earlier this year the Millers were tried and found guilty of conspiracy to steal tax refunds and aggravated identity theft. Virginia Miller had earlier been sentenced to 61 months at ClubFed; Derma Miller received seven years at ClubFed last week. Derma Miller must also make restitution of $493,697, the proceeds of her ill-gotten gains.

While I have nothing but kudos to the IRS and Department of Justice in putting the Millers behind bars, I still believe that the IRS is far more reactionary to the problem of identity theft than creating positive actions. Next season’s mandatory interviews of taxpayers claiming the Earned Income Credit, the Child Tax Credit, and the American Opportunity Credit will not stop dishonest tax professionals from committing identity theft related crime. After all, identity theft is already a crime; if you’re going to commit one felony what’s the harm of committing another.

The Tax King Goes to Prison

Wednesday, September 14th, 2016

The Tax King—at least, the St. Louis version thereof—is heading to ClubFed. Eyob Tilahun owned the Tax King tax preparation firm in the St. Louis area. He wasn’t charging low prices; his typical fee was $400 to $650. And he asked for tips of $100 to $1000. Sounds like a good business model to me.

Of course, I didn’t mention the other things he did. Let’s head back to the DOJ press release from May:

In the pleading guilty today, Tilahun admitted that Tax King’s return preparers were trained and instructed to increase their customers’ refunds by falsifying certain information on their tax returns. The false information that was placed on the returns included: (1) false Business Income and Schedules Cs which caused the clients to qualify for larger Earned Income Credits (“EICs”); (2) false wages, which again caused the clients to qualify for larger EICs; (3) false education expenses which enabled the clients to qualify for American opportunity education credits; and (4) false information regarding fuel taxes which qualified the clients for federal fuel tax credits.

I think I’ve talked about how all these credits can be used for fraud in the past. Congress might want to consider not having so many tax credits…but I’m likely talking to the converted.

Well, sentencing came up last Friday. Mr. Tilahun will have 38 months at ClubFed to think things over. He’ll also have to make restitution of something over $2 million. Maybe that’s why I haven’t embraced this business model.

For individuals shopping tax professionals, remember that if it sounds too good to be true it probably is. If you make a lot of money, you’re likely going to pay a lot in tax. There is no tax fairy to make your taxes go away.

Once Bitten, Twice Not Shy

Monday, September 5th, 2016

Back in 2013, Cedric K. Oliphant was convicted of falsifying a tax return.

Specifically, during his plea hearing today [August 30, 2013], Oliphant admitted he knowingly and willfully included materially false deductions for gifts to charity and for unreimbursed business expenses a client’s 2007 tax return. This tax return alone caused a loss to the U.S. Treasury in the approximate amount of $11,261.

Oliphant also admitted he had knowingly and willfully prepared and filed dozens more false federal income tax returns for other clients for tax years 2006 through 2008 that generated excessive refunds and cause aggregate losses to the IRS of totaling approximately $325,000.

Mr. Oliphant was released on bond awaiting sentencing. A condition of his release was that he stop preparing tax returns. I’m sure you’re ahead of me.

He was sentenced back in 2014:

In handing down the sentence today, Judge Harmon noted that Oliphant had prepared hundreds more tax returns with deductions similar to those described in the plea agreement indicating that actual losses to the National Treasury could be as much as $1 million.

Oliphant had been previously released on bond. However, that bond was revoked when it was determined he violated the conditions of his release by continuing to prepare tax returns after conviction. At that bond hearing on April 10, 2014, evidence demonstrated Oliphant had prepared and electronically filed at least 463 client tax returns during the 2014 filing season.

Fast forward to August 26, 2016 (just a week or so ago); Mr. Oliphant was released from prison. Mr. Oliphant’s troubles apparently weren’t behind him. Remember the accusation of preparing returns when he shouldn’t have been? The US Department of Justice alleges it was quite a bit more than that.

Oliphant had been previously charged and later convicted of preparing dozens of false 2006-08 client tax returns as part of his business – Oliphant Tax Services. He had been permitted to remain on bond during that time under a condition that he have no involvement in the preparation of tax returns other than his own. However, according to the new indictment, Oliphant continued to claim the same false deductions for unsuspecting clients while awaiting sentencing on the previous case.

As part of the scheme, the indictment alleges he changed the name of business to “Tax Services” to allegedly make it appear he had stopped preparing client tax returns and that someone else was the owner of his tax preparation business. Oliphant allegedly attributed the fees to the nominal owner of his tax office but manipulated those tax returns to make it appear the tax office had produced almost no taxable income.

But that’s not all. Mr. Oliphant allegedly used nominees to conceal what was going on:

The indictment also alleges Oliphant established a series of bank accounts in the names of others – including minors with custodians other than himself – so the fees could first be deposited to accounts in the names of the nominal owner of his tax office and others. He then allegedly transferred those fees through these intermediate accounts to accounts in his own name. This scheme enabled Oliphant to conceal his personal use of the fees generated by the business during the course of the prosecution on the first case, according to the charges.

The business allegedly generated $2 million in fees and a total loss to the IRS of another $400,000 or more as charged in the new indictment. As part of the his plea agreement in the earlier case, the losses from those false tax returns exceeded $325,000.

If you sign an agreement not to do something—especially if that agreement is with the government—it’s a very good idea to not do that something. And if you do that something, it’s a good idea to be on the up and up; you know you’re being watched. If these allegations are true, Mr. Oliphant might be heading right back to ClubFed.

Identity Thief Gets 17 1/2 Years

Sunday, June 12th, 2016

Frantz Pierre, formerly of Parkland, Florida but soon to be residing at ClubFed, was sentenced last week to 210 months at ClubFed and must make restitution of $906,556. What did he do? I’ll let the Department of Justice press release tell the story:

According documents filed in court, from July 2010 through May 2011, PIERRE was the leader and organizer of a scheme to steal from the federal government by filling hundreds of fraudulent income tax returns. PIERRE and his co-conspirators used stolen social security numbers and other personal identifiers as well as fabricated employment and income information to complete hundreds of income tax returns and to claim millions of dollars in fraudulent tax refunds.

According to documents filed in court, as part of the scheme, PIERRE and his co-conspirators would establish fictitious tax preparation businesses and then open multiple bank accounts in the names of the fictitious businesses. In addition, PIERRE directed the IRS to deposit the fraudulently obtained income tax refunds into the bank accounts set up by the defendant and his co-conspirators. In total, PIERRE and his co-conspirators submitted approximately 776 fraudulent tax returns to the IRS, resulting in $5,249,935 in tax refunds to be deposited into the fictitious companies’ bank accounts.

There’s not much to add here. I’m glad to see crooks like this get very lengthy terms. Identity theft is miserable for the victims, and many victims did nothing wrong and are victimized. Now, if the IRS could start fully assisting victims instead of putting them through the wringer….

If You Want to Go to ClubFed…

Sunday, June 5th, 2016

…The simplest, fastest, and easiest method (via the tax world) is to withhold employment taxes and not remit them to the IRS. This is always investigated. But at least once a month I see yet another example.

Take the case of Bernard Haag of Piedmont, South Dakota. Mr. Haag was the president and sole stockholder of a corporation, and the sole member of a limited liability company. Through these entities he owned a day care facility. So far, so good. He withheld taxes from his employees’ wages. And as the Department of Justice press release notes, “…[He] willfully failed to pay over those taxes to the United States for all of 2005 through 2011, and three quarters of 2012. Haag also willfully failed to pay the employer’s portion of taxes on wages paid to employees of Big Dog and Concept Development for all of 2005 to 2012. Rather than paying over the taxes, Haag used a portion of the withholdings for his own personal use.”

Adding to his misery he filed for bankruptcy, and also was convicted of concealment of bankruptcy assets. In total, he got 18 months at ClubFed and must make restitution of over $300,000. A helpful hint that I’ve repeated for over ten years: Don’t do this! You will get caught.

Individual F: Has Kermit Washington Fouled Out?

Wednesday, May 25th, 2016

Yesterday I wrote about the guilty plea of former San Diego Charger Ron Mix; today, the other shoe dropped. “Individual F,” as former NBA basketball player Kermit Washington was called in the Mix indictment, was arrested on charges of corrupt interference with the internal revenue laws, wire fraud, obstruction of justice, and aggravated identity theft.

The Department of Justice press release details the charges:

It is alleged that Washington referred professional athletes to Ron Mix, a former professional football player and an attorney licensed in the state of California, whose practice focused on the filing of workers’ compensation claims on behalf of former professional athletes. In exchange for the referrals, Mix made payments to PCA and claimed those amounts as charitable deductions on his personal tax returns. Upon receipt of these payments, Washington diverted the funds for his own personal benefit. Washington filed false individual income tax returns for 2010 through 2013, failing to report the funds he diverted from PCA and false Forms 990-EZ on behalf of PCA. Washington also falsified PCA’s corporate minutes to obstruct the investigation and used the identity of another individual to perpetrate this scheme.

It is further alleged that Washington conspired with others to defraud eBay and PayPal, customers and donors of PCA by allowing the co-conspirators to use PCA’s name, tax-exempt status and IRS Employee Identification Number (EIN) with eBay and PayPal so the co-conspirators could avoid substantial listing and registration fees incurred in operating online, for-profit businesses. Moreover, customers who made purchases falsely believed that 100 percent of the proceeds from the co-conspirators’ online eBay sales benefited PCA. In exchange for allowing the co-conspirators to use PCA’s tax-exempt status, Washington received payments from the co-conspirators.

According to the indictment, Mr. Washington diverted about $500,000 of donations to a charity he founded and used them for his personal benefit. That money also allegedly didn’t make it onto his personal tax return. There are also allegations of fraud against eBay and PayPal, and identity theft. This alleged identity theft was not for purposes of obtaining a tax refund; rather, he used the name of someone without their knowledge as the “Secretary” of his charity on the Form 990-EZ filed for his charity.

Of course, these are just allegations but one thing is certain: Mr. Washington is looking at a lengthy term at ClubFed if he’s found guilty of the charges.

Neither Rain Nor Sleet Nor Snow…But What About Theft?

Sunday, May 1st, 2016

Rain–which we had here in Las Vegas this past weekend–didn’t stop the postman from delivering bills I have to pay. Sleet and snow don’t stop the US mail, either. However, theft of the mail will stop it. One postal carrier will likely be heading to ClubFed because he stole mail used in an identity theft ring.

Earl Champagne delivered mail in Pennsaucken, New Jersey. From the Department of Justice press release:

Champagne admitted that from March 2014 to July 2014 he stole U.S. Treasury Checks from the mail and gave them to others. He said he was approached by two individuals who asked him to retrieve checks from the mail with the promise that he would be paid. The individuals told Champagne that the checks were IRS checks and that they would mostly be addressed to individuals with “Spanish” names. The individuals expected to either pick up the checks from Champagne or for him to notify them that the checks were in the mailbox so that they could retrieve the checks themselves. For this service, Champagne was paid $50 per check for every check stolen from the mail. Champagne admitted that he stole 72 U.S. checks totaling $442,776.

Theft of mail is a felony–and can be subject to a lengthy term at ClubFed (up to 15 years and a $250,000 fine per offense). This wasn’t a brilliant idea as sooner or later someone would notice the lack of the refund check, and then the IRS would be notified and it would be fairly easy to figure out the issue. For Mr. Champagne, the Bozo aspect of his crime didn’t occur to him…but it likely does now (a bit too late for him).

Bozo Tax Tip #1: Publicize Your Tax Crimes on Social Media!

Friday, April 8th, 2016

Social media is really, really big these days. You can follow me on Twitter. I may even update my Facebook page one of these days. Of course, I’m not a tax criminal, and my posts hopefully add knowledge for others.

Of course, where you and I won’t go the Bozo contingent is quite happy to do so. Take, for instance, Rashia Wilson. Ms. Wilson posted a wonderful picture on her Facebook page:

Rashia Wilson (Image Credit: Tampa Police Department)

In the same post, she bragged:

“I’m Rashia, the queen of IRS tax fraud,” Wilson said May 22 on her Facebook page, according to investigators. “I’m a millionaire for the record. So if you think that indicting me will be easy, it won’t. I promise you. I won’t do no time, dumb b——.”

She’s doing 21 years at ClubFed. Oops…

A helpful hint to the Bozo tax community: Law enforcement does read social media. Indeed, the IRS will do a search of you on the Internet prior to a field examination (audit). So if you decide to go on the dark side of life, don’t brag about it online. A better course would be not to go on that dark side to begin with, but that rarely occurs to the Bozo community.


That’s a wrap on our Top Ten Bozo Tax Tips for the 2016 Tax Season. I’ll be back in about a week with normal content.

Maryland Suspends Processing Tax Returns from 23 Liberty Tax Service Locations

Thursday, February 4th, 2016

Maryland Comptroller Peter Franchot announced on Tuesday that he has suspended processing from 16 more Liberty Tax Service locations (bringing the total suspended to 23). The decision was made based on suspicious characteristics found on the returns:

  • Business income reported when taxpayers did not own a business.
  • Refund amounts requested much higher than previous year tax returns.
  • Inflated and/or undocumented business expenses.
  • Dependents claimed when taxpayers did not provide required 50 percent support or care.
  • Inflated wages and withholding information.

These reasons sound like tax fraud 101–what’s been done by unscrupulous preparers year after year. This year, though, at least one state is making an effort to nip these problems before they grow too large.

It should be noted that these stores were owned by franchisees. Jim Wheaton, General Counsel, Chief Compliance Officer, and Vice President of Legal and Government Affairs at Liberty, told Accounting Today that they have a “…robust compliance program, and we expect our franchisees to make sure that their offices comply with all federal and state tax requirements.”

For consumers, the advice that Maryland noted in their press release is accurate: “Taxpayers should carefully review their returns for these issues and should be suspicious if a preparer: deducts fees from the taxpayer’s refund to be deposited into the tax preparer’s account; does not sign the tax return; or fails to include the Preparer Taxpayer Identification number “PTIN” on the return.” I’ll add, if you don’t own a business and see business income on your return, there’s a problem. If you’re not attending college (or have a dependent attending college) and see education tax credits, there’s a problem. If it looks too good to be true, it probably is.